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EWU – ECON 200 - Introduction to Microeconomics - Briand Review Topics for Final Exam: Chapters 1-10 + Selected Topics (Chapters 13-14, 16) Ch. 1 WHAT IS MICROECONOMICS ? In-class worksheet: Production Possibilities Curve. HMK1 packet: Ch 1 - Economics: Definition - 1. Scarcity Definition What would be a free good? Is there any such thing as a free good? What resources do individuals face a scarcity of? What resources does society face a scarcity of? What factors of production are ultimately used in the production of any good or service? - 2. Opportunity Costs Definition Different people have different opportunity costs attached to same alternative choices - 3. Production Possibilities Curve (PPC) What does a PPC show? How do you read the opportunity cost of producing an additional amount of good X from a production possibilities table or a PPC? Shape of a PPC: downward sloping curve, straight line versus bowed outward PPC: meaning Points on/inside/outside the PPC; shifts of the PPC: meaning Ch. 2&3 DEMAND AND SUPPLY MODEL In-class worksheets: Supply and Demand Model: (1) Apples/Oranges & Oil/Natural Gas, (2) Coffee HMK2 packet: Chapters 2-3 1. Demand Side of The Market - a. Demand and Quantity Demanded Definitions, difference between the two graphing a demand curve from a demand schedule individual demand curve versus market demand curve - b. The Law of Demand definition shape of the demand curve substitution and purchasing power effects - c. Change in Quantity Demanded movement along the demand curve reading a change in quantity demanded due to a change in price, off the demand curve - d. Change in Demand shifts of the demand curve: interpretation determinants of demand for good X other than the current price of good X: income (normal versus inferior goods), tastes, prices of related goods and services (substitutes versus complements), expectations of buyers, number of buyers, exchange rate effect 2. Supply Side of The Market - a. Supply and Quantity Supplied Definitions, difference between the two individual supply curve versus market supply curve - b. The Law of Supply definition shape of the supply curve profit motivation of producers - c. Change in Quantity Supplied movement along the supply curve reading a change in quantity supplied due to a change in price, off the supply curve - d. Change in Supply shifts of the supply curve: two interpretations determinants of supply for good X other than the current price of good X: price of inputs, technology, prices of related goods and services, expectations of producers, number of producers/productive capacity, exchange rate effect 3. Putting Demand and Supply Together - - a. Market Equilibrium Price and Quantity definition how do we get from an out of equilibrium price (above/below equilibrium, i.e. surplus/shortage of quantity) to the market equilibrium price? b. Changes in Market Equilibrium Price and Quantity due to a change in demand due to a change in supply due to a change in both demand and supply Ch. 4 PRICE ELASTICITY OF DEMAND In-class worksheets: Price Elasticity & Total Revenue, Elasticity & War on Drug TEST1 packet: Chapters 1-4 1. Definition - definition and meaning elastic, unitary elastic and inelastic demand price elasticity of demand and shape of the demand curve determinants of price elasticity examples of estimated elasticity and meaning calculating the price elasticity of demand: change of elasticity as one moves up a demand curve - price elasticity slope use of mid-value as a base in calculation of % P and % QD 2. Price Elasticity of Demand and Total Expenditure - total expenditure = total revenue relationship between changes in price, elasticity of demand and change in revenue more examples on using elasticity of demand: in-class problems Ch. 5 POLICY ANALYSIS WITH SUPPLY AND DEMAND MODEL In-class worksheets: The Minimum Wage, Water Bottles vs Doctor Visits, Canadian e.g. HMK3 packet: Chapter 5 1. Definition - price floor price ceiling 2. Policy Analysis Examples - the minimum wage the health care services market Ch. 6 WEALTH CREATION AND DESTRUCTION In-class worksheet: Subsidies and Incidence HMK4 packet: Chapter 6 1. - Supply and Demand Model and Wealth Creation Supply curve re-interpreted as a Marginal Cost curve: S = MC Demand curve re-interpreted as a Marginal Benefit curve: D = MB Definition of Consumer Surplus Definition of Producer Surplus Consumer and Producer Surplus combined 2. - Government Intervention and Wealth Destruction Definition of Deadweight Loss Deadweight Loss associated with Price Floor Deadweight Loss associated with Price Ceiling Deadweight Loss associated with Taxation Deadweight Loss associated with Subsidies Ch. 7 TRADE In-class worksheets: Production Possibilities Curve and Gains from Trade, Video PRACTICE packet: Chapter 7 TEST2 packet: Chapters 5-7 1. Analysis of Trade using the Production Possibility Curve - Definition of Absolute Advantage - Definition of Comparative Advantage - Specialization and Trade Gains from Trade 2. - Analysis of Trade using the Supply and Demand Model Consumer and Producer Surplus in a close economy Exports and Wealth Creation (Increase in Surplus) Imports and Wealth Creation (Increase in Surplus) Deadweight Loss associated with Trade Restriction like Tariffs Deadweight Loss associated with Trade Restriction like Quotas Ch. 8 PRODUCTION AND COST In-class worksheets: (1) Production Function in the Short-Run; (2) Production and Costs in the Short-Run; (3) Production and Costs in the Long-Run. HMK5 packet: Chapter 8 1. Thinking about production - inputs and outputs short-run versus long-run 2. Production in the short-run - fixed and variable inputs in short-run production is first characterized by increasing returns to labor and then diminishing return to labor TP, MPL: meaning, computation, interrelation, curves shape 3. Costs in the short-run - how production and costs are related to one another TFC, TVC, TC, AFC, AVC, ATC, MC: meaning, computation, interrelation, curves shape 4. Costs in the long-run - difference between long-run and short-run LTRC TC Shape of the LRATC Economies of scale/diseconomies of scale Ch. 9 PERFECT COMPETITION In-class worksheet: Profit Maximizing Decision: Perfectly Competitive Firm in the Short-Run HMK6 packet: Chapter 9 1. Definition of Profit - accounting versus economic profit relevance of all opportunity costs (implicit + explicit) 2. Characteristics of The Perfectly Competitive Market structure - buyers and sellers are price takers - easy entry and easy exit in the long-run others: see textbook 3. The perfectly competitive firm in the short-run - demand constraint. D=AR=MR=P* (horizontal line at the prevailing market price) cost constraint. Usual TC, ATC, AVC and MC (see previous chapter) profit maximizing output level. TR & TC and MR & MC approaches. profit or loss level: graphs dealing with losses: shutting down or continuing operating rules firm short-run supply curve is the firm MC curve above its minimum AVC 4. Competitive markets in the long-run - firms entry/exit adjustments due to expectation of positive/negative economic profit occur until firms earn zero economic profit goods are produced at the lowest possible costs/consumers get the goods at the lowest possible price Ch. 10 MONOPOLY In-class Worksheets: Profit Maximizing Decision: Non-Perfectly Competitive Firm, videos. PRACTICE packet: Ch 10 TEST3 packet: Chapters 8-10 - 1. market structure characteristics one firm dominating the market sources of monopoly power - 2. monopoly profit maximization goal and constraints demand constraint = market demand (cost constraint: usual) determining profit maximizing level of output and level of profit/loss - 3. more on monopoly monopolization of market and deadweight loss price discrimination Ch. 13-14, 16 SELECTED TOPICS In-class Worksheets: Firm Labor Hiring Decision/College and High School Graduate labor markets, Wage-Gap video, Externalities and Property Rights, Consumer Choice Theory - 1. Labor Market (Chapter 16) Profit maximizing labor hiring decision, individual firm and market demand for labor Determinant of demand in the labor market; reservation wage and the supply of labor Wage differential (i.e.wage gap), and determinants of wage gap - 2. Externalities & Public Goods (Chapters 13 & 14) Externalities and property rights, externalities and the S/D model, ways to correct for externalities Characteristics of a pure public good - 3. Consumer Choice Theory The concept of utility and the utility maximizing consumption choice